Here’s why Rocket Internet’s planned exit from Foodpanda isn’t entirely indicative of struggling Indian e-commerce companies


Berlin-based Rocket Internet is looking to exit from the struggling food start-up company Foodpanda. According to recent reports, the company is already on the look-out for buyers.

Last year, Foodpanda raised over $300 million from Rocket Internet and Goldman Sachs for its global business. The company quickly invested this money into the Indian market and even made acquisitions — Tastykhana and Just Eat in 2015 — to ward off competitors like Zomato, Swiggy and TinyOwl.

However, the massive expansion drive did not yield the fruits that the company had intended, resulting in Foodpanda firing 300 employees towards the end of the year.
Foodpanda logo
No buyers yet for Foodpanda despite low price tag

There were also reports of it being involved in alleged fraud and systematic discrepancies in operations during the previous year. According to the Registrar of Companies (RoC) data, Foodpanda reported a loss of over Rs 36 crore in March 2015.

Foodpanda, however, isn’t the only company in the online food aggregator space that is struggling. Competitors Zomato and TinyOwl also cut jobs and have been scaling down operations, mostly in Tier II and Tier III cities, citing insufficient demand from the places.
Flipkart bears Rs 2,000-crore loss in FY15 to dish out discounts

E-commerce companies have been struggling

E-commerce firms in India have failed to deliver profits despite the gargantuan investments and valuations. This includes even the large e-commerce players such as Flipkart and Snapdeal.
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Fabfurnish, Bedbathmore may merge to compete with Ratan Tata-backed e-furniture firms

In the financial year ended March 2015, Flipkart reported a loss of Rs 2,000 crore as compared to a Rs 715 crore loss in the year-ago period. Snapdeal too reported a loss of Rs 1,350 crore last financial year, up from a loss of Rs 270 crore in the previous year, said a report by a leading news agency.

E-commerce companies have incurred heavy losses due to heavy “attractive” discounting strategy to acquire customers, a PwC report has said, and this model is not feasible in the long run.

Currently, all eyes are on Foodpanda, but here’s why we shouldn’t be up in arms with the company or worried about other e-commerce companies struggling.

All eyes on Foodpanda

Foodpanda is not the only company that Rocket Internet is planning to pull the plug on. Media report suggests that Rocket Internet is also planning to exit Fabfurnish, Printvenue, and Jabong. In fact, the company may even shut down Fabfurnish if it fails to find a buyer in the Indian market.

Exiting from Foodpanda and its other struggling investments has been in the pipeline for Rocket Internet for a while now.

Rocket Internet is not only one of the top investors in Indian e-commerce start-ups, it was also one of the first to enter the country. The “start-up incubator” aims become the largest Internet platform outside the US and China, as the company’s website suggests.
However, it has been struggling with its investments in India. According to this ET Report, Rocket Internet was also in looking to sell Printvenue to rival Vistaprint, but the deal did not come through. It also changed company heads at most companies, including Jabong and Foodpanda, in a bid to turn around fortunes, but the move didn’t help either.

Keeping this in mind, Rocket Internet has been mulling a shift in strategy for some time now.

In fact, the reason for Rocket Internet’s planned exit from its companies in India comes as a part of its shift in strategy which was reported back in September 2015. Looking at the company’s failure to set up promising businesses in India, the company has been planning to move away from incubating start-ups which has been its prime strategy. Instead, it will now directly invest in companies through a venture capital fund, another ET report had said.

Meanwhile, Indian e-commerce companies are looking to pull up their socks too. Flipkart-owned Myntra said on Thursday that it aims to turn profitable by FY17. The online fashion store is planning to reduce discounts by 3-4 percentage points and the company expects to lower the number of products that are discounted on its website.

Myntra’s 60% of revenue in the next financial year would come from products sold at full price up from 54%, the company’s senior vice president of finance Prabhakar Sunder said.

The company also expects to cut supply chain costs by 2 percentage points during the period.